Bat, Fis To Review Corporate Structure

Financial institution sources point out that the scrutiny is a clear indication to the fact that the Yogesh Deveshwar's position is shaky.

The FIR move is designed to unearth any other irregularities before the enforcement directorate does. At present, the FIs are on the defensive and do not want to be caught on the wrong foot again.

After the decision to back K L Chugh backfired, sources say BAT is in a strong moral position to push through its nominees in case there are top-level changes. But before any drastic decision it has been decided to have a thorough re-look at ITC.

 

The decision to look at the various aspects of the ITC group was taken at a meeting held between the heads of FIs and a top-level BAT delegation led by its managing director Tony Johnston yesterday. The fact that ITC group's corporate structure is likely to be reviewed seems to be the first sign that the FIs have been open to BAT's gameplan for ITC. BAT wants ITC to move out of its non-core businesses and concentrate on tobacco.

In London, BAT Industries said it was pushing for top-level changes in ITC over the next few weeks to stop profits going up in smoke in the wake of last week's Enforcement Directorate crackdown.

"We have a short term problem at ITC. The company must be fairly well paralysed. Someone's got to manage the company on a day-to-day basis," said BAT spokesman Michael Prideaux.

BAT stresses that it will only decide on a future course of action after discussions with the financial institutions in Bombay.

"They have to decide on what is the best thing to do. We should listen to the financial institutions. Earlier, we did try to do things on our own and that didn't work very well, says Prideaux.

Though BAT executives are tight-lipped about future courses of action it is clear that they are likely to use this opportunity to push for big management changes.

"We've got to keep the company moving while working out a longer-term plan. We have to discuss this with the financial institutions and perhaps the government," said Prideaux.

At the two-and-a-half hour long brainstorming session in Mumbai, it was decided "to take a comprehensive look at the corporate structure, relationship with group companies and subsidiaries, delegation and internal control mechanisms of the tobacco major, and bring back the operations of the company to normal level at the earliest."

A board meeting of the company has been convened on November 15 at which these issues will be deliberated and necessary action taken. With the majority of shareholders deciding to have a board meeting, Yogi Deveshwar's attempt to postpone the meeting has come to nought.

Earlier, BAT had asked for the board to be convened which reportedly did not find favour with Deveshwar. However, with the FIs putting its might behind BAT, the board meet will be held on November 15.

"Both FIs and BAT were strongly of the view that pending the findings of the current enquiry by the enforcement directorate it is necessary, on a priority basis, to have a comprehensive look at the corporate structure of the company," an IDBI press release said.

"As major shareholders of ITC, both FIs and BAT expressed serious concern over the recent happenings in the company," the release added. The FIs, on their part, reaffirmed that other than what had come up in the Special Audit Report and in respect of which the board had taken necessary follow up action, they had no knowledge of any irregularities or violation of law by the companies and its executives.

The FIs also told the BAT team that the company was yet to furnish full details of some of the transactions that were recently reported in the press, on which the board had sought full information.

On the issue of corporate governance, FIs have taken a stand that its nominees were non-executive directors.

The stance taken by the FIs is to take the pressure it faces from the finance ministry off its back. The financial institutions are of the view that BAT had wholetime directors in the company who should have known of the irregularities and informed the board accordingly.

The Lokman connection

Surajeet Das Gupta

An unsigned diary purportedly written by a top executive of ITC Global who has now left the organisation provides a day-to-day account on what went on behind the scenes among the ITC top brass to recover US $ 3.75 million which was due from the Chitalias through Lokman -- the company which was allegedly set up by the Chitalias at the insistence of ITC executives.

The diary deals with advances which were given to Lokman by ITC Global. Matters came to a head when the Chitalias told ITC that they were winding up the company. Alarmed by this, ITC Global took up the matter with the top ITC officials.

ITC director R K Kutty promised that all cash flows with the EST group would be used to clear ITC Global's dues and the details of how the money would be recovered was formulated. But the diary points out that Kutty backed out of the arrangement and, with the Chitalias refusing to pay ITC Global, was left with no alternative but to go to court to freeze the Lokman accounts in Switzerland.